Property prices in Mumbai, Delhi highly overvalued, say analysts

BANGALORE: After years of double-digit growth, house price rises in major cities are expected to slow to just under 8 per cent next year as a cooling economy and rising interest rates deter new buyers, a Reuters poll showed.

The survey of 11 property market analysts conducted over the past three weeks was for house prices in Asia's third-largest economy to rise 7.8 percent next year well below the current rate of consumer inflation of around 10 per cent.

The findings of the latest India housing market poll are similar to recent Reuters polls conducted in the US, Canada, Britain, China and Brazil where home price rises are also expected to lose momentum but not fall.

Home sales in India slowed this year and unsold inventory with builders has increased as economic growth in the broader economy has decelerated quickly to half the 10 per cent rate it was running at before 2008.

But the main problem in a country where almost one-quarter of the population earns less than 50 cents a day is the price.

"In some of the key markets in the country, property prices are sky high," said Sachin Sandhir, managing director at RICS South Asia.

"Due to uncertainty about the economy, high interest rates and rising inflation, developers are holding on to their prices making some locations unaffordable. Indeed, a 2000 sq.ft (185.8 sq.metre) apartment in the posh South Mumbai neighbourhood of Malabar Hill costs more than $2 million.

That is not far from the average three-bedroom unit in Manhattan, New York City, which costs around $2.6 million.

Although the majority of homes in Indian cities are nowhere near that expensive, it shows how far real estate values in Mumbai have risen. And dwindling incomes have put low-cost homes out of reach for many people.

Most of the urban price rises are expected to take place in Chennai followed by New Delhi and its suburbs and Bangalore while already high prices in Mumbai will likely stagnate.

Analysts gave property in Mumbai and Delhi-India's two biggest cities-an overall rating of 9 on a 10-point scale where 1 is extremely undervalued and 10 is highly overvalued.

That is a much higher rating than in similar Reuters polls conducted around the world. Prices in the UK, which have re-touched record highs by some measures and are soaring in London were rated 6 while those in Canada were rated 6.3.

INTEREST RATE RISES BITING

The Reserve Bank of India's (RBI) determination to bring down broader inflation in the economy has also slowed the market.

The RBI hiked its benchmark repo rate twice in September and November as it tries to rein in soaring prices and there is an outside chance it could tighten again at a meeting next week.

It even nudged hesitant commercial banks to pass on the increases to borrowers.A home loan of up to Rs 30 lakh from the country's largest home finance company HDFC now costs 10.5 per cent per year up 35 basis points since the start of the year.

A bigger mortgage costs more.

Buying a house in the country has traditionally been a sentimental decision not for investment.

But soaring prices in recent years has led a growing middle class to turn to real estate as a means of generating wealth.

"Unsold inventory of development properties aimed at that new type of buyer is now a cause for concern,'' say analysts.

"How can someone take a long-term loan without income growth or guarantee?" asked Samantak Das, chief economist at Knight Frank India.

Inventory pressure on developers in Mumbai and Delhi is actually going up.

According to Knight Frank research, it takes nine quarters for developers in Mumbai to sell existing inventory almost twice the five quarters it took in December 2011.

New launches in the city plummeted over 40 per cent compared to peak levels in 2010 as developers focussed on selling current inventories'' according to their recent report.

MUMBAI: Domestic as well as international investors are looking at newer cities with stable assets for investments, a trend that will be prominent in 2014, and accordingly Chennai jumps to the hot—list for the first time, says a PwC survey.

GANDHINAGAR: The Gujarat Waqf Board has announced the implementation of the provisions of the newly-enacted central law, the ‘Waqf (amendment) Act-2013', in the state from November 1, 2013. Under the new act, no foreigner can be a Mutawalli (manager of waqf property) in India. Only an Indian citizen can serve as a Mutawalli in this country.

DELHI: With over 50 developers signing up to build affordable housing projects in new sectors, buying a flat in the city at a relatively economical Rs 12 lakh is set to become a reality. The low-cost housing policy project announced by the state government in August fixed the price of flats at Rs 43,000 per sq m with the sizes of flats ranging between 28 and 60 sq.m. The department of town and country planning (DTCP), Haryana, has set a deadline of four years from the approval of building plans

DELHI: Resumption of work on the much-delayed Dwarka Expressway is good news for the thousands of end users and investors here. The expressway has emerged as one of the most sought-after real estate destinations in the National Capital Region (NCR) today.

BANGALORE: Floor Space Index incentives are offered not only to fresh proposals but also to the existing realty proposals. Housing societies of landlords or occupiers may convert their earlier proposals in accordance with the modified regulations, provided the redevelopment scheme is in progress and has not been completed, i.e. where full occupation certificate is not granted.

BANGALORE: After years of double-digit growth, house price rises in major Indian cities are expected to slow to just under 8 percent next year as a cooling economy and rising interest rates deter new buyers, a Reuters poll showed.

BANGALORE: In an attempt to get information on built-up area of buildings and thereby generate more tax revenue, District Minister R Ramalinga Reddy has directed the BBMP to revise records of all registered properties by January 15.